MAJOR ISSUES IN THE ECONOMY OF PAKISTAN / BASIC

CHARACTERISTICS OF DEVELOPING COUNTRIES LIKE PAKISTAN 

Introduction: 
A country where the average income of the people is much lower than that
of developed countries, the economy depends upon a few export crops and
where farming is conducted by primary methods is called developing
country. Rapid population growth is causing the shortage of food in many
developing countries. Criteria to an Under-developed Nation: 
i. Potential to become economically developed. 
ii. Low or no rising trend of per capita income. 
iii. Countries very poor in resources. 
Prof. Harvey Leibenstein, in his “Economic Backwardness and Economic
Growth” divides these characteristics into four categories: A. Economic
characteristics: Following are the economic characteristics of UDC’s: 
1- General Poverty and Low Living Standard. 
Poverty cannot be described, it can only be felt. The most of the less
developed countries (LDC) are facing the major problem of general as well
as absolute poverty and low standard of living. Most of the people in
developing nations are ill-fed, ill-housed, ill-clothed and ill-literate. In LDCs
almost 1/3 population is much poor. But in Pakistan, 21.0 % population is
living below poverty. 
2- Burden of Internal and External Debts. 
Under developed countries (UDC) are loans and grants receiving nations.
Most of the developing countries of the world are depending on foreign
economic loans. An amount of foreign loans is increasing as the years
pass. Their foreign trade and political structure is also dependent on the
guidance of foreigners. The outstanding total public debts are Rs. 12024
billion (58.2% of GDP) and the value of external debts and liabilities is $
60.3 billion and services charges on all types of debts are Rs. 730.733
billion during 2011-12, in Pakistan. 
3- Low Per Capita Income. 
Due to low national income and huge population growth rate, per capita
income in developing countries is very low. At constant prices (Base Year
1959-60) per capita income of Pakistan was Rs. 985 and according to the
Economic Survey of Pakistan 2011-12 per capita income of Pakistan is $
1372. 
4- Over Dependence on Agriculture. 
61% Population of Pakistan is living in more than 50,000 villages.
Backward agriculture is the major occupation of the population. Agriculture
sector is backward due to old and traditional methods of cultivation, in-
efficient farmers, lack of credit facilities; un-organized agriculture market
etc. 66.7% population is directly or indirectly depending on agriculture
sector in Pakistan. It contributes to GDP 21.0% while in advanced nations
it is less than 5 %. It employed 45.0 % of labour force while it is less than 5
% in developed countries. 
5- Backward Industrial Sector. 
Backward industrial sector is an additional feature of under developed
countries. Industrial sector of Pakistani economy is backward since
independence. Pakistan got only 34 (3.7 % of total industrial units)
industrial units out of 921 units in sub-continent in 1947. Small and
backward industrial sector is based on low level of capital formation,
technology, training and education and over dependence on agriculture
sector. 13.7% labour force is attached with industrial sector in Pakistan. Its
share to GDP is 25.4 % and to exports is more than 60 %. 
6- Unemployment. 
An outstanding problem of developing countries is their high rate of un-
employment, under-employment and disguised-unemployment. More than
3.5 million people are unemployed in Pakistan. There is 16 %
underemployed and 20% disguised unemployed of total labour force.
Unemployment rate is 6.0%; it is mainly due to high population growth rate,
which is 2.03%. 
7- Low level of Productivity. 
The productivity level is very low in under developed countries as
compared to developed countries. Low level of productivity is due to
economic backwardness of people, lack of skill, illiteracy and ill-training.
Value of annual productivity of labour is about $ 100 while it is more than $
2500 in advanced nations in Pakistan. Minimum wages are Rs.8000/- per
month against the average gross salary of $3,950 (Rs.3,79,200) per month
in United States. 
8- Deficit Balance of Payment. 
Third world countries have to import some finished and capital goods to
make economic development, on the other hand they have no products to
export but raw material. During July-April, its exports were $ 20.474 billion
and imports were $ 33.15 billion in case of Pakistan. So, its deficit balance
of payment was $ 12.68 billion in 2011-12. 
9- Dualistic Economy. 
Dualistic economy refers to the existence of advanced & modern sectors
with traditional & backward sectors. Pakistani economy is also a dualistic
economy as other developing countries on the following grounds: Co-
existence of modern and traditional methods of production in urban and
rural areas, Co-existence of wealthy, highly educated class with a large
number of illiterate poor classes and Co-existence of very high living
standard with very low living standard. 
10- Deficiency of Capital. 
Shortage of capital is another serious problem of poor nations. Lack of
capital leads to low per capita income, less saving and short investment.
National saving is 10.7% of GDP and total investment is 12.5% of GDP in
Pakistan. Rate of capital accumulation is very low as 5%. On the other
hand, capital output ratio (COR) is very high which is not desirable for
economic development. 
11- In-appropriate Use of Natural Resources. 
Mostly there is shortage of natural resources in developing nations and this
is also a cause of their economic backwardness. Natural resources are
available in various poor countries but they remain un-utilized, under-
utilized or mis-utilized due to capital shortage, less efficiency of labour,
lack of skill and knowledge, backward state of technology, improper
government actions and limited home market. Natural resources contribute
to the GDP about 1%. 
12- Market Imperfection. 
Market is imperfect in accordance with market conditions, rules and
regulations in the most of developing nations. There exist monopolies, mis-
leading information, immobility of factors; hoarding and smuggling etc. that
cause the market to remain imperfect. 
13- Limited Foreign Trade. 
Due to backwardness, developing countries have to export raw material
because the quality of their products is not according to international
standard ISO etc. Lower developing nations have to import finished and
capital goods. Imports of Pakistan are $ 33.15 billion and exports are $
20.474 billion that cause into unfavourable balance of payment of $ 12.676
billion. 
14- Vicious Circle of Poverty. 
According to vicious circle of poverty, less developed nations are trapped
by their own poverty. Vicious circle of poverty is also applied in case of
Pakistani economy. Due to poverty, national income of Pakistan is low
which causes low saving and low investment. So, rate of capital formation
is very low results in “a country is poor because she is poor”. 
15- Inflation. 
High rate of inflation causes economic backwardness in poor nations. Due
to high level of price, purchasing power, value of money and saving of the
consumers tend to decrease. Rate of inflation (CPI) is 10.8% in 2011-12 in
Pakistan. 
B. Demographic characteristics: 
Following are the demographic characteristics: 
16- Backward Population Explosion. 
Another common feature of lower developing nations is population
pressure due to high growth rate and reduction in death rate. Population of
the Pakistan is 180.71 million with the rapid growth rate of 2.03% and
death rate 0.72 % in 2011-12. Pakistan is at 6th number in the list of the
most populous nations. Basic needs like food, clothing, housing, education,
sanitations and health facilities are not available for the huge portion of
population in these countries. 
17- Poor Health and Diseases. 
M. P. Todaro in his “Economic Development” states, “Many people in
developing countries fight a constant battle against malnutrition, diseases
and ill health”. Average life expectancy in Pakistan is 65.2 year against 75
years in developed countries. One Doctor is for 1206 persons and one
Nurse is for 2369 persons, one Dentist for 16420 persons, number of
hospitals is 972 and one hospital bed is available for 1665 persons. The
total expenditure on health sector is just 0.27 % (Rs. 55.12 billion) of the
GDP. 
18- Pollution. 
There is too much pollution in poor countries. On the one side huge
existing population is not provided basic facilities of life, like sanitation,
clean water, infrastructure etc. but on the other side due to rapid population
growth, industrialization and transportation air, water and earth pollution is
increasing. Industries are causing pollution because of non-installation of
treatment plants. Number of continuous air pollution monitoring stations is
only 7 in Pakistan. Pakistan is at number 29th at the chart of the most
polluted nations and at number 6th in Asian countries. 
19- Brain Drain. 
An outflow of the best, brightest and talented student from poor nations to
rich nations is called brain drain. There is less reward for the talent, which
causes an outflow of best brain in the backward countries. Reward is not
paid in accordance with the capability, skill and efficiency in less developed
countries. 
20- Inadequate Infrastructure. 
Adequate infrastructure is needed which is not available in poor economies
to enhance the process of economic development. Roads, transport,
telecommunications, sanitation, health and education facilities are not at
their best level in these nations. Government has reserved an amount of
Rs.133 billion to develop the infrastructure. C. Cultural and political
characteristics: Following are the cultural and political characteristics of
LDC’s: 
21- High Degree of Illiteracy. 
Illiteracy rate is very high in poor countries while it is almost zero in rich
countries. There is lack of technical education and training centers, which
is necessary for economic growth and development. Literacy rate in
Pakistan is 58% during 2011-12. Expenditure on education sector is just
1.8 % of GDP during last year. 
22- Low Level of Organization. 
There is absence of developed minded leadership in economic activities in
third world nations. Decision making power of entrepreneur is very low due
to illiteracy, less training and backward techniques. Most of educational
institutions are producing employees rather than employers. 
23- Low Self-esteem. 
There is less respect, honour and dignity of people in the lower developed
countries. People are honoured due to their powers, relations and castes
instead of capabilities. There is poverty, poor health, poor education and
shortage of other social services. Government and population of poor
countries are under the external influence. 
24- Un-productive Expenditures. 
Population mostly copies the styles of population of developed nations due
to demonstration action in poor economies. Their consumption activities
not only move around their income but also depend upon the relatives,
friends and locality. They spend more on birth, death, marriages and
various other ceremonies etc. which reduces their savings and investment.  

25- Political Instability. 

There is political instability in the most of the developing countries. There
are a lot of clashes between government and the opposition that is a cause
to reduction in domestic as well as foreign investment. Political instability
keeps low the level of economic development. 
26- Influence of Feudal Lords. 
The poor class is under the influence of feudal lords and tribal heads in
lower developed nations. The feudal lords want to keep the people
backward and do not appreciate the development of the poor. About 50.8%
poor borrow from landlords and 57.4 % poor are working for feudal lords
without wages in Pakistan. 
27- Unproductive Use of Funds. 
The unproductive expenditures are rising day by day in developing
countries like Pakistan due to socio-economic and administrative reasons.
During the year 2009-10, Rs. 343 billion were spent for defence. About
75% of the budget is spent on defence, administration, repayments of loan
and interest charges in Pakistan. 
28- Govt. Control by Wealthy Persons. 
Wealthy persons, landlords and elite class not only control the government
but also they have full control over all the major sectors of the economy in
poor countries. This rich class is not interested to solve the problems of the
poor for their welfare but they make government policies for their own
improvement. 
29- Frequent Changes in Fiscal Policy. 
Revenues and expenditures policy of government is not stable in
developing countries. Government has to change the fiscal policy
according to the will of its own people. Industrialists are the main controller
of the government and they adjust the fiscal policy in accordance with their
own benefits. 
30- Violation of Law and Order. 
Law and order conditions are at their poor stage in Pakistan like other
developing countries. A huge portion of saving of people is wasted in costly
and lengthy legal process. As in case of Iftikhar Muhammad Chohdery
(CJP), he himself has to wait for justices for a long period. 
D. Technological and miscellaneous characteristics: 
Following are the technological and miscellaneous characteristics of
developing countries: 
31- Backward State of Technology. 
Use of modern techniques of production is not adopted in developing
countries. It may cause further unemployment. Use of advanced
technology is impossible due to shortage of capital, lack of skill and
training, high cost of production and lack of foreign exchange reserves.
Backward state of technology is results in low production, high cost and
wastage of time. 
32- Social Aspects. 
Under developed countries have also some factors such as joint family
system, caste system, cultural and religious views, beliefs and values that
badly affect their economic development. 30.88 % population is working
population and remaining 69.12 % population is depending on them in
Pakistan. 
33- Un-fair Wealth and Income Distribution. 
There are not only regional inequalities in developing countries but also
wealth and income inequalities. There is unfair wealth and income
distribution in less developed nation. 20 % extremely rich population has
50.02% of national resources, while 20 % poorest population has just 6.37
% of national resources in Pakistan. The difference between rich and poor
is increasing day by day. 
34- Lack of Experts and Skilled Persons. 
People have to move abroad for advanced study due to illiteracy and lack
of training institutes. They adjust them in foreign countries due to low
remuneration and less self-esteem. So, there is scarcity of experts, skilled
and trained staff that causes the poor nation to remain backward. 
35- Dependence on External Resources. 
The international trade, political activities and other economic activities are
under the influence of other advanced countries in less developing
countries. Their development plans are financed by the loan giving
countries; these plans are made to serve the interests of foreign countries.
So, poor nations are loans and grants receiving nations. Conclusion: We
conclude that all above characteristics are unfavourable for the developing
economies. These features are obstacles in way of economic development.
All these features are cause of low rate of capital formation, poverty and
creation of vicious circle of poverty.